Are we entering the responsible tax era?

When Google was making the newspaper front pages, day after day, for apparent tax dodginess back in May 2013, the response from the CEO Eric Schmidt was: change British law and we'll pay more tax. He made the case, as many other business leaders have done before and since, that his company did pay the right amount of tax, and it was the rules that needed changing, not Google's interpretation of them which was at fault.

 

This came only a few months after sustained public scrutiny of Starbucks' UK and European tax affairs. Starbucks’ then UK boss, and now European head, Kris Engskov felt moved to pen an open letter to HM Treasury. In it he suggested that, even though Starbucks did not owe outstanding corporation tax and that it struggled to generate profits in the UK, the company had nonetheless decided to make a voluntarily £20m contribution to HM Treasury. This was a bizarre, unfathomable and much-derided decision for a corporation that was otherwise relying on the ‘our-duty-is-to-maximise-shareholder-returns’ doctrine.

 

Starbucks charitable offer gave credence to the idea that, while the 99 per cent – of both businesses and individuals – must pay tax at stipulated and non-negotiable rates, the rules for the rich and powerful are different. This affront to good old British fairness is likely the reason why right wing and left wing media alike have united in the putting tax abuse stories on the front pages. According to research conducted for the Institute of Business Ethics, corporate tax avoidance has been the primary ethical concern for the British public since 2013, and businesses must increase transparency to regain public trust.

 

As with all social, environmental and ethical matters which affect business and wider society, taxation presents companies with a choice. They can either grab the nettle, admit the issue is complex, that it presents various challenges, that they do not have all the answers, yet will commit to pursuing policies and practices which align with their stated values. In short, they can commit to doing the right thing, to doing their best, and to being transparent on and accountable for their actions. Alternatively, they can keep their head down and hope for the best.

 

The decision a company makes is made on a range of criteria such as whether it engages in “aggressive” tax practices or not. Or whether it is in the public eye and therefore possibly of interest to the NGOs and campaign groups working toward better and best corporate practices. As SIGWATCH’s chart shows, doing some things well does not make you immune (Source: SIGWATCH 2015). We live in an era where businesses which attract the most praise from campaign groups are often the same businesses subject to the highest levels of criticism.

 

A company’s decision between grasping the nettle or keeping its head down will also depend to a large extent on its culture and the quality of its leadership. As we are seeing, some say “the tax system is broken, it is not our fault or problem, someone else needs to fix it”. But, increasingly, other corporate leaders are recognising the futility of claiming to ethical, responsible, sustainable, value-driven, ‘on your side’, and ‘part of the solution’, etc., when those qualities are demonstrated only partially, or occasionally, and as public trust in business continues to plummet. Public distrust is unlikely to be the fault of any single business, but it is certainly everyone’s problem. Truly responsible businesses know that and share responsibility for fixing it.

 

The recent Panama Papers revelations lay bare the very shocking extent of capital flight and tax avoidance committed and enabled by corrupt businesses and individuals. As the official website puts it, we can now scrutinise (some of) the “political leaders, criminals and celebrities and the rogue industry that hides their cash”. But it also further empowers and validates efforts to create a better, fairer, more sustainable system. Such as the OECD’s Base Erosion and Profit Shifting (‘BEPS’) initiative, a collaboration of over 100 countries and jurisdictions working together to “combat tax avoidance strategies which exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations”.

 

Tax responsible businesses can support the work of BEPS, a list of requested submissions and submission dates can be found here. Closer to home, businesses may wish to lend their support to the work of the All-Party Parliamentary Group on Responsible Tax, ably chaired by Dame Margaret Hodge MP, as those listed here have done.

 

If you find the tax campaigners waving placards outside your company HQ, all is not lost. Search “SABMiller and tax” and you will find a litany of references to campaigns that NGOs mounted in response to what they perceived to be very poor practices back in 2010. This was a painful time for the drinks giant, but its response was brilliant. Difficult as it was, it owned the criticism and sat down for meaningful discussions with the critics. Find the video of a debate I chaired in May 2016 between the company and one of its main critics, Christian Aid, here. SABMiller now has an excellent story to tell in regards to tax.

 

Legal & General, arguably, has done more in terms of tax transparency than any other large business. On four occasions since 2013, its head of tax has sat down with tax campaigners and other businesses to discuss its answer to a searching question on tax transparency co-authored with the Tax Justice Network. In so doing, they have made credible disclosures on various critical tax issues; most importantly if, how and where the company tax policy is fully explained, if and how reporting on tax is broken down country-by-country, and if subsidiaries in tax havens exist and for what purposes, and whether accounts for subsidiaries are published.

 

The Responsible 100 / Tax Justice Network tax question is simply: Is your business transparent on tax. It is supported by detailed answering requirements which can be viewed here. Legal & General’s answer to the question can be viewed here. Any business can answer this question. Any business can benchmark its performance as poor, okay, good or excellent in so doing. Any business can publish its answer and score for anyone to view and scrutinise on our website.

 

My advice, if your business wants to be responsible on tax, is that it needs to clearly say so. Make a bold, clear, unequivocal statement to that effect. Do so unilaterally, or better still by getting the Fair Tax Mark or by answering the Responsible 100 tax question. Keeping your head below the parapet, not sharing responsibility for making things better, and leaving tax responsibility for your successors to deal with falls a long way short of leadership that wider society requires of you in these challenging times.

 

Last updated on 7 December 2016. 

 

Michael Solomon is the director of Responsible 100, an initiative that enables businesses to demonstrate transparency and accountability on a range of social, environmental and ethical issues. Responsible 100's next roundtable meeting exploring tax will be held on 18 January 2017 in Central London; further details can be found here

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